Download or read book Analyst Forecast Accruals Mispricing and Earnings Management written by 黃鼎喬 and published by . This book was released on 2014 with total page 106 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Do Analysts Forecasts Fully Reflect the Information in Accruals written by Anwer S. Ahmed and published by . This book was released on 2008 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates whether financial analysts correctly weight cash flows, accruals and components of accruals in forecasting future earnings. This examination is in the spirit of Sloan (1996) who documents evidence that investors do not correctly distinguish between the cash flow and accrual components of earnings. We find that analysts do distinguish between accruals and cash flows although they generally underweight the information in both accruals and cash flows. More importantly, we find that analysts do not distinguish between discretionary and non-discretionary accruals even though discretionary accruals are less persistent than non-discretionary accruals. Our findings complement and extend the findings in recent studies on analyst forecast inefficiency with respect to the information in accrual and cash flow components of earnings using alternative research designs [Teoh and Wong (1998), Bradshaw, Richardson and Sloan (2000), Barth and Hutton (2000)]. Analysts are considered to play an important role as information intermediaries in educating investors about the future prospects of firms. They are trained in analyzing financial data and have industry expertise as well as detailed firm-specific knowledge through contacts with managers. Thus, one would expect analysts to correctly incorporate the information in earnings components specifically discretionary versus non-discretionary accruals. Our evidence complements evidence in recent studies that raises questions about the ability of analysts, on-average, to correctly incorporate the information in accruals and cash flows in forecasting future earnings. This in turn implies that other outsiders are also likely to find it difficult to undo earnings management via discretionary accruals and therefore provides a rationale for the existence of earnings management.

Download or read book The Association Between Management Earnings Forecast Errors and Accruals written by Guojin Gong and published by . This book was released on 2008 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the association between errors in management forecasts of subsequent year earnings and current year accruals. In an uncertain operating environment, managers' assessments of their firms' business prospects are imperfect. Since managers' imperfect business assessments influence both accruals generation and earnings projection, we hypothesize that management earnings forecasts exhibit greater optimism (pessimism) when accruals are relatively high (low). Consistent with this hypothesis, we find a positive association between management earnings forecast errors and accruals. This positive association is stronger for firms operating in a more uncertain business environment and for firms in industries exhibiting greater covariation between accruals and growth-related activities. Moreover, this positive association is significant when accruals likely reflect managers' true beliefs about firms' business prospects, but is nonexistent when accruals are likely manipulated to boost managers' trading gains. Supplementary analysis reveals that the presence of management earnings forecasts does not significantly reduce accrual mispricing.

Download or read book Pricing of Accounting Accruals Information and Revisions of Analyst Earnings Forecasts written by Keiichi Kubota and published by . This book was released on 2008 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates how accurately the information contained in accounting accruals and their components are impounded into stock prices and provide evidence on the accounting accruals and the revisions of analyst earnings forecasts in terms of pricing or mispricing the stock. The results from the regression analyses with pooled data and the ones from the cross-sectional Fama and MacBeth tests unanimously suggest that the accounting accruals and their components, in particular, the abnormal accruals, have significant explanatory power in explaining the future stock returns, even after adjusting for the systematic risk of the stocks. Second, we conduct hedging portfolio tests and find that the accruals information helps investors earn abnormal returns. Finally, we investigate the relationship between the abnormal accruals and the revisions of analyst earnings forecasts. We find that the larger the abnormal accruals of the firms, the higher the subsequent downward revisions of analyst forecasts. The evidence indicates that the analysts fail to incorporate the full implications of accruals information in forming their forecasts, even though such an overestimation or underestimation eventually is corrected as the next year's earnings related information becomes publicly available.

Download or read book Understanding Analysts Reactions to Earnings Management written by Yuyan Guan and published by . This book was released on 2006 with total page 230 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis examines the determinants of analysts' reactions to firms' earnings management. I present a model showing that analysts revise their forecasts according to their forecast errors revealed by earnings announcements and reporting biases embedded in reported earnings. The model further demonstrates that the relationship between forecast revisions and reporting biases can be affected by analysts' forecasting ability, the inherent uncertainty of whether reporting biases have occurred, as well as analysts' incentives. To empirically test the model's prediction regarding analysts' forecasting ability, I use analysts' firm-specific experience, size of their brokerage firm, and the number of industries they follow as proxies. Consistent with the model's prediction, I provide evidence showing that well-experienced analysts adjust more for earnings management while analysts following a greater number of industries adjust less for earnings management. Sensitivity analysis using analyst's historical firm-specific forecast accuracy as an alternative measure of forecasting ability further supports the hypothesis that analysts with better forecasting ability adjust more for earnings management. Moreover, analysts adjust less for earnings management when the inherent uncertainty of the reporting bias is greater. Specifically, analysts adjust less for earnings management when: (1) the past volatility of discretionary accruals is high; and (2) the firm has a marked propensity to smooth earnings. There is little evidence that affiliated analysts adjust less for earnings management than unaffiliated analysts. However, analysts adjust more for earnings management in the post-Reg FD period than in the pre-Reg FD period, which is consistent with Regulation FD achieving its objective of strengthening analysts' incentives to issue unbiased forecasts.

Download or read book Industry specific Discretionary Accruals and Earnings Management written by Atif Ikram and published by . This book was released on 2011 with total page 84 pages. Available in PDF, EPUB and Kindle. Book excerpt: Chapter 3 extends the decomposition to examine the role of firm-specific and industry-specific discretionary accruals in explaining the subsequent market underperformance and negative analysts' forecast errors documented for firms issuing equity. I examine the post-issue market returns and analysts' forecast errors for a sample of seasoned equity issues between 1975 and 2004 and find that offering-year firm-specific discretionary accruals can partially explain these anomalous capital market outcomes. Nonetheless, I find this predictive power of firm-specific accruals to be more pronounced for issues that occur during 1975 - 1989 compared to issues taking place between 1990 and 2004. Additionally, I find no evidence that investors and analysts are more overoptimistic about the prospects of issuers that have both high firm-specific and industry-specific discretionary accruals (compared to firms with high discretionary accruals in general). The results indicate no role for industry-specific discretionary accruals in explaining overoptimistic expectations from seasoned equity issues and suggest the importance of firm-specific factors in inducing earnings manipulation surrounding equity issues.

Download or read book The Impact of Earnings Quality on Investors and Analysts Reactions to Restatement Announcements written by Robin Nicole Romanus and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite countless efforts to elucidate market participants' understanding of the implications of earnings quality, empirical accounting research has rendered two distinct perspectives. The first perspective considers market participants naïve users of accounting information who fail to grasp the implications of earnings quality resulting in temporary security mispricing. The second perspective suggests that market participants scrutinize earnings reports carefully and subsequently discern and price the quality of earnings. The purpose of my research is to help clarify the ambiguity surrounding market participants' pricing of earnings quality using one clearly observable indicator of low-quality earnings, accounting restatements. This study examines the effect pre-restatement earnings quality has on short-window returns and analyst forecast revisions and dispersion following restatement announcements using a cross-section of 719 publicly traded firms that announced restatements between 1997 and 2004. Accrual and book-tax difference metrics are used to proxy for earnings quality. The metrics are examined separately and collectively to ascertain their individual and incremental effects in modeling the market reaction. Further analyses investigate the effects that various levels of investor sophistication have on the market reaction. Results indicate that the market reaction to restatement announcements is significantly influenced by pre-restatement earnings quality. Specifically, both the accrual and book-tax difference measures of earnings quality are significantly and negatively related to the market reaction. Further analysis indicates the predictive power of the model is improved by including both the accrual and book-tax difference proxies. This finding suggests the information in book-tax differences may provide market participants with signals from which to assess earnings quality that are distinct from those contained in accruals. Basic results for analyst forecast dispersion and revisions are not conclusive. Results of the interactions between each earnings quality proxy and level of investor sophistication are significant only for the accrual based measure of earnings quality. This suggests that sophisticated investors are more attuned to the implication of accrual based measures of earnings quality than book-tax difference measures.

Download or read book The Handbook of Equity Market Anomalies written by Leonard Zacks and published by John Wiley & Sons. This book was released on 2011-08-24 with total page 352 pages. Available in PDF, EPUB and Kindle. Book excerpt: Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies. Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies Anomalies are selected by Len Zacks, a pioneer in the field of investing As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.

Download or read book Earnings Quality written by Jennifer Francis and published by Now Publishers Inc. This book was released on 2008 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.

Download or read book Earnings Management written by Joshua Ronen and published by Springer Science & Business Media. This book was released on 2008-08-06 with total page 587 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?

Download or read book Earnings Forecasts and Share Price Reversals written by Werner Fransiscus Marcel De Bondt and published by Cfa Inst. This book was released on 1992 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Extreme Accruals Earnings Quality and Investor Mispricing written by Anwer S. Ahmed and published by . This book was released on 2004 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Extreme accruals are commonly viewed as tainted by earnings management, contributing to lower quality earnings. We refer to this presumption as the earnings management/quality hypothesis. We directly examine three aspects of the presumed relation between the level of accruals and earnings management/quality: (i) the implications of earnings management for earnings persistence, (ii) the implications of earnings management for accrual mispricing, and (iii) the likelihood of greater opportunistic management to achieve earnings targets.We find (i) no evidence that extreme income-increasing accruals have lower persistence for year-ahead earnings, (ii) no evidence that investors systematically overweight extreme accruals, and (iii) no evidence that extreme accrual firms fall into the interval of firms just avoiding losses or earnings decreases more than other firms. We do find evidence that extreme income-decreasing accruals have lower persistence, but the evidence suggests this results from poor economic performance rather than accrual manipulation. We also document that investors consistently underestimate the persistence of cash flows for all firms, and that predictable year-ahead abnormal returns to extreme total or abnormal accrual portfolios documented in prior work appear to be driven by cash flow mispricing rather than accrual mispricing. Overall, our findings cast doubt on using extreme accruals to proxy for earnings management and/or low earnings quality.

Download or read book Analysts Use of Accruals and Cash Flows in Forecasting Earnings written by Ramesh Narayana Chari and published by . This book was released on 1998 with total page 140 pages. Available in PDF, EPUB and Kindle. Book excerpt: This research investigates whether financial analysts fully incorporate the information contained in accrual and cash flow components of current earnings when forecasting future earnings. I present evidence that analysts fail to fully incorporate the implications of these components for earnings persistence in their forecasts. Analysts' appear to ignore information in past earnings to a greater extent when the magnitude of accruals in prior year earnings is large relative to cash flows. I find that information in these components can be used to improve analysts' forecasts. This improvement is most evident for firms which have a high incidence of accruals in prior year earnings. I demonstrate the economic significance of improving analysts' forecasts by implementing a trading strategy that predicts stock price changes. This trading strategy yields significantly positive risk-adjusted abnormal returns. These results suggest that analysts' forecasting inefficiency (see Mendenhall, 1991) is potentially rooted in their misperceptions about the implications of accruals and cash flows for earnings persistence. These findings are useful to accounting standard-setters and to capital markets research that uses analysts' forecasts to proxy for earnings expectations.

Download or read book Analyst Earnings Forecast Revisions and the Pricing of Accruals written by Mary E. Barth and published by . This book was released on 2003 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Effects of Earnings Management Strategy on Earnings Predictability written by Leon Li (College teacher) and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "This study argues that the managerial choice of earnings management strategy maybe contingent upon a firm's information asymmetry and such a strategy affects the firm's earnings predictability. Measuring information asymmetry by earnings predictability based on the subsequent dispersion in analysts' forecasts and employing a quantile regression to analyze28,383 U.S. firm-year observations obtained from 1988 to 2014, this study reports that the effect of earnings management strategy on earnings predictability is non-uniform. Specifically,the amount of absolute discretionary accruals negatively (positively) relate to the subsequent dispersion in analysts' forecasts in the low (high) quantiles of the latter. These results support our hypothesis that a firm may implement efficient or opportunistic earnings management strategies according to the degree of information asymmetry between the firm's management and corporate outsiders. Keywords: Discretionary accruals, analysts' forecasts dispersion, quantile regression"--Page [ii].

Download or read book Earnings Quality and Accrual Mispricing a Country and Firm level Investigation in the Period Surrounding SOX written by Maria Elizabeth Strydom and published by . This book was released on 2011 with total page 378 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis investigates accrual mispricing through two related studies. The first examines the impact of earnings quality on accrual mispricing in the US and determines whether mispricing persists at the country level in the high earnings quality environment following the Sarbanes-Oxley Act (SOX) of 2002. The second study determines whether accruals are mispriced at the firm level and if such firm level mispricing persists so that profits can be generated by exploiting this trading strategy.The motivation to investigate the impact of earnings quality on the mispricing of accruals stems from the substantive literature that documents the persistent accrual anomaly (Sloan, 1996; Xie, 2001; Mashruwala et al., 2006) but fails to find its cause. This thesis examines whether this persistent country-level mispricing stems from investors being misled by low earnings quality. When earnings quality is low, investors will not be able to accurately price accruals. Earnings quality could therefore explain the existence of the accrual anomaly. Since SOX improved earnings quality, accrual mispricing should be less in the post-SOX environment. This thesis therefore also examines the mispricing of accruals post-SOX to determine whether it persists.This thesis' second study is motivated by the cross-country (Pincus et al., 2007), country-level (Sloan, 1996; Xie, 2001), and industry-level (Zhang, 2007; Trejo-Pech et al., 2009) evidence that shows differences in mispricing. While cross-country, country-level, and industry-level mispricing have been investigated, there is no evidence on whether a firm-level anomaly exists, and this study therefore attempts to fill that void. This study is also motivated by the findings of Fama and French (2008) and Avramov et al. (2010). Fama and French (2008) investigate the pervasiveness of asset pricing anomalies and conclude that the accrual anomaly is one of few that persist in all size groups, cross sections, and sorts. Avramov et al. (2010) similarly investigate commonalities across asset pricing anomalies and conclude that whilst the majority of asset pricing anomalies are associated with downgrades in firm credit ratings, the accrual anomaly is an exception and remains unaccounted for and robust. Given the pervasiveness of this anomaly over time, this study investigates whether the firm-level accrual anomaly is similarly persistent.Two accrual mispricing models (Mishkin, 1983; Kraft et al., 2007) are employed in the first study to investigate the impact of earnings quality on the accrual anomaly. These models are augmented by including earnings quality proxies to determine their impact on mispricing. Given that both yield identical results, the second study employs only the Mishkin (1983) model to estimate firm-level mispricing. The mispricing model is employed for each firm in each year to estimate firm-level accrual mispricing. Significantly over- and underpriced accrual firms are identified, and a trading strategy of buying underpriced accrual firms and selling overpriced ones is examined for abnormal returns.The results from the first study indicate that earnings quality mitigates accrual mispricing. When investigated in the post-SOX environment, however, there is no evidence of mispricing. This is true even without considering earnings quality. These findings show that SOX have achieved its stated aim of improving disclosure quality so that investors are better able to estimate accrual persistence, mitigating the anomaly. The second study shows, however, that firm-level mispricing still exists. Specifically, it shows that both significantly over- and underpriced accrual firms exist in the same post-SOX sample, whereas at the country level no anomaly was documented. As with the differences in accrual mispricing documented at the aggregate market (Hirshleifer et al., 2009) and industry levels (Trejo-Pech et al., 2009), firm-level mispricing also differs from the country-level anomaly. Further analyses of firm-level mispricing show abnormal returns are available from a strategy of selling overpriced accrual firms and buying underpriced accrual firms.The first study contributes to the literature documenting the impact of earnings quality on accrual mispricing and thus provides evidence of the importance of good disclosure quality in ensuring efficient pricing. It also contributes by showing that SOX has achieved its stated aims of improving disclosure quality and has thus mitigated mispricing at the country level. A further contribution is the direct comparison of the accrual mispricing models of Mishkin (1983) and Kraft et al. (2007) and the evidence that they yield similar results. The second study makes two main contributions: First, it documents that firm-level accrual mispricing exists, even in the absence of a country-level anomaly. Second, the study shows that at the firm level both significantly over- and underpriced accrual firms exist, and it establishes the persistence of this firm-level mispricing. It also documents that investors can profit from a firm-level accrual mispricing strategy.

Download or read book Earnings Management written by Joshua Ronen and published by Springer Science & Business Media. This book was released on 2008 with total page 587 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?